What is the digitization of business?

Digitization is the conversion of analog information into digital form. It occurs when you represent images, sounds, signal, or objects by a series of numbers.

Digitalization, if we want to make fine distinctions, is the process of adopting digital technologies. It includes the changes to organizations that result from digitization. Businesses use digital information technology to make their operations more efficient. For simplicity here, we’ll use the word digitization in place of digitalization.

In corporate communications, digitization evolved from analog to digital telephones. Then it went on to include fax, email and EDI, electronic forms (PDFs), the Internet, smartphones, and the Internet of Things.

In each case, waves of increasing digitization made business faster and more efficient.

Digitization optimizes current operations. It doesn’t alter the nature of a company’s transactions or its role within its ecosystem. Business models don’t change.

Digital transformation is radical and intentionally disruptive

In contrast to digitization, digital transformation occurs when companies generate entirely new revenue streams, products, services, and business models. So says Hung LeHong, a Gartner analyst who helps executives judge whether their digital initiatives are transformations or just optimizations. He shared his thoughts in CIO magazine.

Newcomers may drive digital transformation in new markets they target. Amazon, Uber, Lyft, Airbnb, and WeWork are good examples.

But Digital transformation isn’t limited to new companies that disrupt an established industry with new business models.

Well-established companies may also pursue digital transformation. They may do so to disrupt their industry or to avoid being disrupted, LeHong notes. Established competitors may also adopt digital transformation as a way to win new customers.

Leaders transform their company to take advantage of new possibilities.

Companies may redefine how their business functions work and how they interact. They may even redraw the boundaries of their business.

A business may develop a new ecosystem that “blurs the lines between supply chain, partner, customer, crowd, and employee.”

It’s like the transformation of a caterpillar to a butterfly, says Dion Hinchliffe, technology strategist. An organization moves “from one way of working to an entirely new one, replacing corporate body parts and ways of functioning...”

The goal is “to capture far more value than was possible using low-scale, low-leverage legacy business,” he says.

Westerman says companies he calls “digital masters” are 26% more profitable than competitors in their industry.

“'Digital masters’ are 26% more profitable than competitors in their industry.”

Digital masters, he says, are companies that strike an effective balance between technology and the “ability to envision and continuously drive change.”

Most businesses aren’t on a path that leads to transformation

Seven years later, a few notable companies have made newsworthy progress. But most muddle along with half-hearted commitments and weak strategy.

Across industries, only a minority of companies have fully embraced digital transformation. Only 16% had taken steps toward reinvention. That’s the conclusion of the McKinsey authors, based on data they collected in 2016.

By “steps toward reinvention” the authors mean two things:

The businesses restructured their portfolios. They did so by divesting businesses that were declining and by expanding profitable ones.

They spent more money than their peers. They invested in an aggressive digital strategy that enabled new business models.

By mid-2017, the same researchers found that less than 20% of companies had taken the path of “digital reinvention.” The data in that study came from 1,650 firms around the world.

“In mid-2017, less than 20% of companies had taken the path of ‘digital reinvention.’”

The authors conclude that “most incumbent firms are failing to adjust to the digital era.”

Many companies shrink from the commitment

Indeed, digital transformation is a big commitment. It’s not to be undertaken lightly.

It’s not easy to undertake a massive transformation of technology and company culture. It’s even harder to do so when investors expect you to continue driving revenue and profit growth from your current business.

Digital transformation puts CEOs and CIOs smack in the middle of what Clayton Christensen of the Harvard Business School has called the “innovator’s dilemma.”

Forty-seven percent of CEOs told Gartner they are feeling pressure from their board to make progress in building their digital business. These numbers come from Gartner’s 2017 CEO survey.

Twenty percent of CEOs say their corporate posture is now “digital first.” And 22% say they are “digital to the core.”

Even so, more than half of CEOs (53%) couldn’t provide a clear metric for success of their digital transition.

“More than half of CEOs couldn’t provide a clear metric for success of their digital transition. ”

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About Generix Group North America

Generix Group North America has been developing and implementing their best-of-breed supply chain optimization systems. SOLOCHAIN is a world class Warehouse Management System (WMS) and Manufacturing Execution System (MES), with implementation sites spanning the globe. This solution allows manufacturing as well as logistics companies to optimise their operations across the supply chain. SOLOCHAIN is a web-based application that provides a scalable and easily adaptable platform, that integrates the latest technologies. Fast, intuitive user interfaces translate into better control, increased mobility and a more productive work force